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Financial Risk: Utilities generally commit huge capital and operational expenditure upfront costs for their AMI implementation programs and there is always a looming danger of not realizing the targeted financial objectives of the program. Overrunning the projected costs is very much a possibility. The utilities however can avoid the risk of incurring huge upfront costs owing to traditional way of AMI implementation by opting for Managed Services which is charged to them on a "pay-per-use" pricing model. Managed Services provide the utilities a predictability of costs incurred during the program and saves them from the program costs spiraling out of control. Utilities are better able to align project results to program costs in Managed Services model. Managed Services particularly help small and mid-sized utilities that face severe funding constraints for their AMI programs.
Technology Risk: AMI technology is currently in the growth phase of the Industry cycle and is therefore seeing a lot of technological innovations and advent of new standards and protocols. A utility exposes itself to the technology risks when it invests heavily in a particular technology or standard for its AMI program. Complex AMI programs can take couple of years to get into production and by the time their programs enter into production phase, a new generation of AMI technology would have arrived in the industry which the utility can ill-afford to adopt. On the other hand, Managed Services vendors invest significantly in mastering new technologies, adopting new protocols and standards and building an ecosystem around their products and services through partnerships and alliances. And they also employ many expert professionals who have spent considerable amount of time working in various technologies. The Managed Services vendors are part of many AMI technology research forums and industry groups and share common product development and strategy with many product vendors. From this perspective, Managed Services vendors are always better equipped to counter the technology risks and challenges arising from AMI programs than the Utilities. Managed Services option gives the utilities a complete freedom from worrying about future technological changes and in a way makes their AMI technology future proof.
Supply Risk: An AMI implementation program involves sourcing of scores of smart Meters, communications equipment, hardware and software from various sources based on their quality and requirement of the project. It requires a big logistical effort to ensure a steady supply of hardware and devices from different vendors so that the meter installations and network and software deployments go uninterrupted. Utilities can entirely pass this activity to Managed Services providers who have the alliances and contractual agreements with the equipment manufacturers and vendors to work around this kind of risk. These Service providers also have a shared AMI market vision and strategy with the suppliers.
Resources Ramp-up/Ramp-down Risk: Managed Services can go a long way in mitigating Resources ramp-up/ramp risks for the utilities. Managed Services model is based on use of shared services and resources, standardized processes and re-usable products and artifacts which makes it is easier for the service providers to ramp up or ramp down the resources as per the AMI project requirements and charge accordingly on per transaction or per service basis to the utilities.
Risk due to mid-program Scope Changes: Scope changes can occur mid-way through the AMI program which can cause program implementation disruptions and budget and time overrun. Managed Services providers can manage this risk by foreseeing and managing the scope changes through efficient and effective change management approach.
Risk due to unavailability of skilled resources: Short supply of skilled resources required for AMI program implementations poses a real risk for the utilities. Lack of communication and training for existing personnel also impacts the outcome of the program. A Managed Services vendor shoulders the entire responsibility of sourcing key professionals for the AMI program from its pool of experts who have a very rich industry and AMI implementation experience.
Risk due to involvement of multiple vendors: A typical AMI program involves multiple vendors spanning across multiple streams of services and products like Meter supply, Deployment services, System Integration, Program Management, Networking and Telecommunication etc. Communicating common program objectives and vision across all the vendors and their varied perception of the same poses a big challenge for the utilities in achieving synergy in the program. However, engaging with a single Managed Services vendor and sharing with them common program vision and objectives makes the job much simpler for the Utilities. The Managed Services providers, who have past experience and relationship of working with various vendors and suppliers, successfully manage them and achieve optimal performance in the program. Managed Services route helps the utilities in reducing the risks and complexities arising out of managing multiple vendors.
Risk of committing errors: The AMI regime incorporates a fair amount of complexities into various utilities' business processes, operations and technologies. For example, the existing Billing process of a utility assumes higher complexity due to complex calculation of different types of dynamic tariffs, ToU (Time of Use) billing, demand side management etc. which increases the risk of committing errors in billing. Utilities can let the Managed Services vendors operate their complex business processes by using their standard and proven solutions and experienced professionals to mitigate the risk of committing errors.
Regulatory Risk: Regulatory authorities look towards safeguarding the customer interests and market competition in AMI scenario. Utilities are required to comply with various Industry regulations. In order to meet all regulatory obligations, the Utilities can build appropriate regulatory compliance mechanisms into their contractual agreements with Managed Services vendors and link the payments with discharge of Regulatory responsibilities during performance of services.
Risk due to Aging Workforce: The roll out of Smart Meters and allied infrastructure brings in lot of changes in business processes and increases functional and technical complexities. It requires a very agile and skilled work force who can internalize trainings and new AMI related technologies and complex business processes to become fully productive in less turnaround time. With many Utilities today facing the issue of Aging work force, preparing a highly skilled and agile workforce to run successfully the AMI set-up could be a challenge. However, the Managed Services vendors have the required pool of expert professionals to successfully operate and maintain various AMI assets and processes during and after the AMI implementation. And off-course, it is prudent for the Utilities to entrust the task of operating and maintaining the AMI set-up to the Services providers who also would have implemented the AMI system.
Environmental Risk: Utilities are required to appropriately dispose and re-cycle the decommissioned Metering equipment that could otherwise pose an environmental hazard. Managed Services vendors have alliances and partnerships with various equipment manufacturers and stakeholders to follow appropriate standard and methodology for safe disposal and re-cycling of decommissioned metering equipment.
Conclusion: AMI implementation involving IT applications integration, large scale program management, security, networking, telecommunications, change management, procurement etc. are definitely not the strength areas of the Utilities. Therefore customizing and managing an AMI system do not come without its share of risks and challenges for the utilities. Managed Services providers today can provide answers for many of the questions related to risks and challenges that the utilities are facing today for their AMI implementation programs. Although Managed Services brings with it risks such as disruption in services and more cost on a long term basis, these risks however can be managed by going for a long term contract and incorporating penalty clauses for service disruptions and linking business benefits to terms of payment in the contractual agreement. The benefits and cost advantage that the Managed Services providers accrue from standardization, mutualization/sharing and reusability of their bundled products & services can be passed to the utilities through cheaper cost of services and products through a "pay per use" model. Finally, it makes a lot of sense for the Utilities to focus more in the areas where they have core competency in activities such as providing reliable and quality electricity and related services and let the Managed Services providers handle the risks and challenges arising from managing all non-core activities including AMI implementation and operations.
